Far East Hospitality Trust - CIMB Research 2016-04-28: 1QFY16: RevPAR stabilises

Far East Hospitality Trust - CIMB Research 2016-04-28: 1QFY16: RevPAR stabilises FAR EAST HOSPITALITY TRUST Q5T.SI 

Far East Hospitality Trust 1QFY16: RevPAR stabilises 

  • Though 1Q16 DPU of 1.08Scts (+1% yoy) formed 24% of our FY16F, we consider results to be slightly ahead of our expectations. We expect stronger 2Q & 3Q. 
  • Hotel RevPAR was flat yoy at S$141, halting a slide the trust experienced in 2015. 
  • Serviced residences’ RevPAU dropped 9% yoy to S$188 due to lower corporate travel budgets. 
  • We expect a U-shape recovery for RevPAR. 
  • We maintain our Hold rating and raise our DDM-based target price to S$0.65. 


1QFY16: RevPAR stablises 

  • The main takeaway from 1Q16 results was that hotel RevPAR has stabilized. However, due to lower corporate travel budgets, serviced residences (13.5% of 1Q16 revenue) remained sluggish. 
  • Revenue from excluded commercial premises decreased marginally by 2.1% yoy, with a decrease in average occupancy. 
  • Overall, 1Q16 gross revenue stabilised at S$27.4m. 
  • NPI and distributable income improved 1% yoy to S$24.7m and S$19.4m, respectively. 

Hotels: slide in RevPAR has halted 

  • Hotel RevPAR was flat yoy at S$141, halting a slide FEHT experienced in 2015. 
  • Occupancy was 5.7% pts higher yoy at 88% but ADR was 6.4% lower at S$160. 
  • STB estimated that RevPAR across all hotel segments grew by 1.9% for Jan-Feb 2016, but we expect Mar data to slow down a little. The recovery of Indonesian arrivals helped the trust’s Orchard properties. 
  • Village Hotel Changi was affected by lower corporate travel budgets and the Orchard Parade hotel was hampered somewhat by an ongoing AEI. 

Market segmentation – Hotels 

  • Hotels saw a greater contribution from leisure (up 61% of hotel revenue in 1Q16 vs. 56.4% in 1Q15), as corporate demand remained soft. 
  • Revenue from Europe increased yoy, forming 22.5% of hotel revenue (1Q15: 20.3%). 
  • AEI for Orchard Parade hotel is expected to be completed by 2Q16 and there are no other major AEIs planned for 2016. 

Drag from serviced residences 

  • Serviced residences RevPAU dropped 9% yoy to S$188 due to lower corporate travel budgets. The average occupancy for serviced residences was 1.5% pts lower yoy at 84.3% and ADR was 7.1% yoy lower at S$223. 
  • Regency House was affected by an ongoing AEI (completed by 2Q16), while Village Residence Clarke Quay suffered from a larger inventory of rooms. 

We expect a U-shape recovery for RevPAR 

  • We now expect FY16 RevPAR, and resulting DPU, to be flat yoy (we previously expected a 2% yoy decline). However, with the new supply of 2,700 rooms coming onstream in 2016, coupled with the quality of arrivals and shortening of length of stay, we do not expect a material improvement in RevPAR. 
  • With seasonality, we expect better qoq and flat yoy performances for 2Q16. 

Sustained re-rating unlikely, maintain Hold 

  • What the above could imply for share price performance is that there could be a onestep re-rating to factor in the bottoming of RevPAR (which could already have occurred). However, a sustained re-rating is unlikely, in our view. 
  • Hence, we maintain our Hold recommendation on the stock with a higher DDM-based target price of S$0.65. 
  • FEHT offers a 6.9% FY16F dividend yield vs. its historical average of 5.9%.



LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-04-28
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.65 Up 0.61


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